QE2 Matters, But Watch Earnings

Treasurys, which have been trading poorly for several weeks, are down again today...the possibility of a very modest QE2 program from the Fed (see the Hilsenrath piece in the WSJ this morning) is pushing the dollar up and pressuring commodity, industrial, and energy stocks.

Truth is, there is still a wide spectrum of opinons on QE2; some saying $500 billion over 6 months will be announced; others saying $150 billion on month to month basis.

With some QE2 baked in and a Republican takeover of the House in the market, what can make a difference? Earnings. We are a little more than halfway through earnings season, and so far they have been excellent.

But stocks have expected earnings, and some that have reported good numbers are being sold today.

Look at the restaurant chains, getting hammered: Brinker , down 4.5 percent on a 5 percent decline in sales at flagship Chili's. PF Chang's down 4.7 percent after it cuts its full-year guidance, Buffalo Wild Wings , down 5 percent as same store sales were lower than expected and the outlook was below some expectations, and Panera Bread , down 4.5 percent even though they raised Q4 guidance.

Bottom line: stocks were priced for perfection, even companies like Panera that raised guidance couldn't do it enough for some traders.

Hope for the close is in financials, BofA up 2.4 percent, Goldman Sachs up 0.6%, JP Morgan up 0.2 percent, which may generate a better close than where we are seeing, traders note.

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